Rambus Inc. (RMBS - Snapshot Report) has signed a 10-year licensing agreement with Samsung Electronics. Per the agreement, Samsung will use Rambus’ integrated chip technologies and security technologies in its devices such as tablets, smartphones and set-top boxes though 2023. Notably, Rambus already has an agreement with Samsung and this extension broadly signifies the necessity of the former’s technologies for semiconductor companies.
In doing so, Rambus is entitled to a royalty payment of $15 million per quarter for the first five years from Samsung. Rambus also quoted that the royalty payments for the rest of the period will be determined after taking into consideration certain ‘market-related factors’. Moreover, the agreement entails Samsung to pay $22 million to Rambus initially.
Rambus’ patented technologies are of great importance to chipmakers for making advanced chips that are used in computers or electronic goods. Hence, the company has been signing a number of multi-year licensing deals each year, primarily with semiconductor companies.
Recently, Rambus and semiconductor company, Micron Technology (MU - Analyst Report), entered into a similar licensing agreement for a seven-year period. Per the agreement, Rambus will receive royalty payments of up to $10.0 million a quarter, or $40 million over 12 months, totaling $280 million over the contract period.
Apart from this, over the past few months, Rambus has licensed its technology to Fujitsu Semiconductor Ltd., NVIDIA Corp. (NVDA - Analyst Report), Broadcom Corp. (BRCM - Analyst Report) and MediaTek Inc. for their respective integrated circuit products.
These licensing agreements are a recurring revenue source for Rambus as it has been successfully monetizing its patents. In the last reported quarter, the company reported a robust increase in its top line primarily based on the royalty payments received from various DRAM customers.
Moreover, the company expects to introduce several innovative products and services in 2014 that would support its revenue growth, going forward.
Apart from these, we are encouraged by Rambus’ decision to divest its Display patent assets to Acacia Research Corp. and to focus wholly on the Lighting space, given the enormous growth prospects in this market.
Also, competition from Semiconductor Manufacturing International Corp., LSI Corp. and Advanced Micro Devices, Inc., and oversupply in the semiconductor market are concerns.
Currently, Rambus has a Zacks Rank #3 (Hold).